Iceland's PM stepping down for 'unspecified' period in Panama Papers scandal, officials say

April 5, 2016: In this grab taken from video, Iceland's Prime Minister Sigmundur David Gunnlaugsson leaves after holding a meeting at Iceland's Parliament in Reykjavik. (AP)

Iceland’s embattled prime minster is stepping aside “for an unspecified amount of time” but not for good, the country’s government said Wednesday, in the first major political shakeup linked to the Panama Papers leaks.

The reports, based on a trove of confidential documents from Panama-based law firm Mossack Fonseca, exposed the offshore financial arrangements of public officials, businesspeople and celebrities around the world.

The leaked documents allege that Sigmundur David Gunnlaugsson and his wife set up a company called Wintris in the British Virgin Islands with the help of Mossack Fonseca. Gunnlaugsson is accused of a conflict of interest for failing to disclose his involvement in the company, which held interests in failed Icelandic banks that his government was responsible for overseeing.

Gunnlaugsson's deputy, Agriculture Minister Sigurdur Ingi Johannsson, first announced Tuesday that the prime minister would step down as leader of Iceland's coalition government. It followed the refusal by Iceland's president to dissolve parliament and call a new election, and after thousands of Icelanders protested outside the parliament building in Reykjavik.

No replacement for Gunnlaugsson has yet been named, and President Olafur Ragnar Grimsson did not immediately confirm that he had accepted the resignation. Late Tuesday, a government statement said Gunnlaugsson had suggested Johannsson take over as prime minister for "an unspecified amount of time," while Gunnlauggson would stay on as leader of his center-right Progressive Party.

Gunnlaugson has denied any wrongdoing and said he and his wife have paid all their taxes. He also said his financial holdings didn't affect his negotiations with Iceland's creditors during the country's acute financial crisis.

Iceland, a volcanic North Atlantic island nation with a population of 330,000, was rocked by a prolonged financial crisis when its main commercial banks collapsed within a week of one another in 2008.

Since then Icelanders have weathered a deep recession and been subjected to tough capital controls — another reason the prime minister's offshore holdings rankle many.

Ukrainian President Petro Poroshenko also denied wrongdoing Wednesday after his name was linked to accounts arranged by Mossack Fonseca.

Poroshenko said it was necessary to create an offshore holding company to put his candy business in a blind trust when he became president of Ukraine in 2014.

"This is absolutely normal procedure, and I think this is the main difference from the naming of all the political figures in this Panama list," Poroshenko said in Tokyo, where he was meeting with Japan's Prime Minister Shinzo Abe and business leaders.

"If we have anything to be investigated, I am happy to do that," he said. "But, this is absolutely transparent from the very beginning. No hidden account, no associated management, no nothing."

Because offshore accounts and companies also hide the names of the ultimate owners of investments, they can be used to illegally evade taxes or launder money.

Mossack Fonseca said it obeys all laws relating to company registrations and does not advise people how to evade taxes.

The firm said in a statement that "our industry is not particularly well understood by the public, and unfortunately this series of articles will only serve to deepen that confusion.

"The facts are these: While we may have been the victim of a data breach, nothing in this illegally obtained cache of documents suggests we've done anything wrong or illegal, and that's very much in keeping with the global reputation we've worked hard to build over the past 40 years of doing business the right way."

The Associated Press contributed to this report.